FRC consults on actuarial standards for pension incentive exercises
News types: Consultation Announcement
Published: 11 June 2012
BAS PN 44
The FRC’s Board for Actuarial Standards (BAS) has today published a consultation paper which proposes to bring actuarial work on pension incentive exercises into the scope of the FRC’s technical actuarial standards (TASs). The consultation also considers whether the TASs should include specific principles to be followed when providing actuarial advice on incentive exercises.
The FRC’s move follows the publication of a new Code of Practice for incentive exercises developed by a DWP-sponsored industry working group.
The FRC’s move follows the publication of a new Code of Practice for incentive exercises developed by a DWP-sponsored industry working group.
Commenting on the announcement, Jim Sutcliffe, Chairman of the BAS, said:
“Actuaries frequently advise parties offering incentive exercises. These parties need to be aware of the risks and uncertainties to pensions of any proposals that are put to members. The TASs already provide a good framework which can be used for actuarial input to these exercises. We consider that bringing actuarial work on incentive exercises into the scope of the TASs will support wider moves to improve the information, safeguards and outcomes for scheme members.”
Notes to editors
- The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. One of the FRC’s objectives is to promote competence and transparency of actuarial practice by establishing and improving actuarial technical standards and ensuring that they are coherent, consistent and comprehensive.
- An incentive exercise is where a sponsoring or associated employer of a defined benefit pension scheme seeks to remove some or all of its liabilities by offering scheme members some sort of incentive to transfer or modify their benefits.
- The most common form of incentive is an enhancement to the calculated transfer value of the member’s benefits in the scheme, a cash payment in addition to the transfer value, or a mixture of the two, on the condition that those benefits are transferred out to another form of pension provision which is invariably a defined contribution scheme.
- These are known as enhanced transfer value exercises (ETVs).Another form of incentive exercise is a pension increase exercise (PIE) where the member is asked to give up non-statutory post-retirement pension increases (usually in respect of benefits accrued from employment before 1997) in return for a higher flat rate pension within the scheme.
- A Code of Practice on incentive exercises was published on 9 June 2012. It sets out good practice which those involved in incentive exercises, including those offering the exercise and advisors, are encouraged to follow. The Code was prepared by a pensions industry working group and can be found at: http://www.incentiveexercises.org.uk/.